Amazon Is Raking In A Huge Amount Of Profit On Its Cloud, Competitor Says

August 1, 2013 Leave a comment

Amazon Is Raking In A Huge Amount Of Profit On Its Cloud, Competitor Says

JULIE BORT JUL. 31, 2013, 7:31 PM 1,886 3

Amazon is notoriously tight-lipped when talking about its cloud business. It’s cloud prices are cheap and the company has vaguely said it keeps prices low by charging a low margin of profit. But the folks at cloud computing competitor ProfitBricks say that Amazon’s low margins are a myth. They say that the company is really making 60-80% profit. To prove that, ProfitBricks cut its prices in half on Wednesday, to a measly 3.25 cents an hour for compute time including 1G RAM (yes, less than 4 cents). And it says at that rate, it’s still making plenty of profit. This compares to somewhere between 6 cents and 60 cents an hour for Amazon. Gauger further explained in a blog post.

“I calculate ProfitBricks pricing on a regular basis … we are a little smaller than Amazon so I am pretty sure that the prices we pay for hardware, data center space or energy are higher than Amazon and the other big players. So here is the deal: if I were to sell our product at the same prices as Amazon or Rackspace does I would have gross margins far higher than the quoted 60% to 80%.”

One caveat: he didn’t include the salaries for the people maintaining the hardware or writing software, he told us, and it’s unclear how Amazon accounts for the expense of its cloud computing people.

But if his calculations are on the money, Amazon’s cloud is definitely profitable enough to validate Amazon’s growing investment in it, including things like building out an new enterprise salesforce, and poaching execs from rivals like VMware and building its first-ever “private” cloud for the CIA, should that deal come to pass.

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